Ch 13.2 (Short-Term Obligations Expected to Be Refinanced)

Question 1

Short-term obligations

Answer 1

Debts scheduled to mature within one year after the date of a company’s balance sheet or within its operating cycle, whichever is longer.

Question 2

Short-term obligations expected to be refinanced (on a long-term basis)

Answer 2

Short-term obligations that will not require the use of working capital during the next year (or operating cycle, if longer).

Question 3

Classify short-term debt expected to be refinanced as noncurrent only if one or both of the following criteria are met as of the balance sheet date

Answer 3

1. The liability is contractually due to be settled more than one year (or operating cycle, if longer) after the balance sheet date.
2. The entity has a contractual right to defer settlement of the liability for at least one year (or operating cycle, if longer) after the balance sheet date.

Question 4

Short-term debt that is refinanced after the balance sheet date but before its financial statements are issued

Answer 4

Debt is classified as current because at the balance sheet date because the company does not have the refinancing completed.

Question 5

IFRS and refinancing

Answer 5

IFRS also requires that the current portion of long-term debt be classified as current unless an agreement to refinance on a long-term basis is completed before the date of the financial statements.

Question 6

Slow to refinance short-term debt may imply

Answer 6

Analysts worry about higher interests costs from the Fed. This can make a company have higher debt costs and lower stock prices (investors want the vice versa). Thus it’s prudent to refinance as soon as one has to or before things go south.